Federal government looks to impose limits on dividends, executive pay from airlines who receive bailout
Sources also said the government would demand companies open up their books to see 'how bad things really are' and ensure the aid package is only 'exactly what they need'
Author of the article: Christopher Nardi
Publishing date:Nov 09, 2020 • 
Government sources say any future Canadian airline bailout will include many limitations on what the money can or cannot be spent on. PHOTO BY DARRYL DYCK/THE CANADIAN PRESS/FILE
OTTAWA – The federal government wants to impose strict conditions on airline companies that may receive a COVID-19 bailout, such as limiting executive bonuses and dividend payments and agreeing to annual climate-related financial disclosures.
Sunday, Transport Minister Marc Garneau announced in a statement that the federal government was developing an aid package for the airline industry to help it stay afloat after being devastated by the COVID-19 pandemic.
As part of his announcement, Garneau promised Canadians that airlines would have to commit to reimbursing clients who have cancelled flights because of the pandemic.
He also said no aid would come if airlines wouldn’t promise to maintain important regional connections throughout the country, as well as continuing to purchase key goods and services from the Canadian aerospace industry.
“Before we spend one penny of taxpayer money on airlines, we will ensure Canadians get their refunds,” Garneau’s statement read. “We will ensure Canadians and regional communities retain air connections to the rest of Canada, and that Canadian air carriers maintain their status as key customers of Canada’s aerospace industry.”
But government sources say any future airline bailout will also include many limitations on what the money can or cannot be spent on. It will also include certain financial disclosure obligations during and after the negotiations.
More specifically, they say the government will pull a page out of the conditions laid out in the Large Employer Emergency Financing Facility (LEEFF), which is a heavily criticized short-term interest bearing loan program aimed at large Canadian employers.
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To be eligible for a LEEFF loan, companies must accept a list of conditions such as limiting dividends and executive pay and bonuses all the while committing to minimizing loss of employment, sustaining domestic business activities and providing annual climate-related financial disclosures.
“The same conditions that you find in the LEEFF will be included in any and all deals that will be negotiated,” one government source explained. They were granted anonymity so as to discuss details of upcoming negotiations freely.
Sources also explained that the government would demand aerospace companies open up their books to see “how bad things really are” and to ensure that the aid package is only “exactly what they need.”
“We want aid to be the smallest amount possible,” one source summarized.
“We are still feeling the scars from the bonuses paid out to former Bombardier CEO Alain Bellemare. The government very much remembers that decision, and we don’t want that happening again,” they continued.
That is referring to a series of extremely controversial decisions by the Montreal-based company to hike executive pay and bonuses over recent years all the while it laid of thousands of workers and received millions of dollars in public funds to support its struggling aerospace division.
For example, Bombardier awarded US$32.6 million to senior executives in 2016 — a 50 per cent increased compared with 2015 — at the same time it was receiving a $372.5-million loan from Ottawa to keep its CSeries and Global 7000 programs afloat.
Earlier this year, the company came under fire again for offering Bellemare a $17.5 million compensation package after he announced he was stepping down in March.
“We are still feeling the scars from the bonuses paid out to former Bombardier CEO Alain Bellemare. … We don’t want that happening again.” PHOTO BY PETER J. THOMPSON/NATIONAL POST/FILE
On Monday morning, Industry Minister Navdeep Bains opened the door to simply using the LEEFF program to aid airlines, airports and other crucial parts of the industry.
“We’ll look at different options (such as) the LEEFF program in terms of liquidity support,” Bains said, noting the industry was being “devastated” by the pandemic.
To date, only two firms have received LEEFF loans since the program came into effect in May. Critics have complained that it imposes too many operating restrictions and the interest rates are well above the average from private lenders.
Regardless of the shape it would take, an airline bailout would be the first targeted commercial aid promised by the Liberals since the beginning of the pandemic in March.
And the help can’t come soon enough, according to the airline industry.
Monday, Air Canada reported a loss if $685 million for the third quarter of the year, in addition to a net cash burn of $9 million per day.
The airline also admitted to considering closing 95 additional routes (on top of the 30 domestic routes already suspended indefinitely earlier this year) until Garneau’s announcement Sunday that an aid package was coming.
“(Monday’s) results reflect COVID-19’s unprecedented impact on our industry globally and on Air Canada in what has historically been our most productive and profitable quarter,” CEO Calin Rovinescu wrote in a statement.
Mike McNaney, president and CEO of the National Airlines Council of Canada with represents Air Canada, WestJet, Air Transat and Jazz Aviation, said he was “encouraged” by Garneau’s announcement.
“Airlines are struggling to remain viable because of the economic chaos created by COVID-19. All measures have been taken to reduce costs, and revenue has fallen beyond the means of even the most extreme cost cutting measures to address. The industry will not recover without strong federal leadership,” he said in a statement Sunday.
On Monday morning, Industry Minister Navdeep Bains opened the door to simply using the LEEFF program to aid airlines, airports and other crucial parts of the industry.
“We’ll look at different options (such as) the LEEFF program in terms of liquidity support,” Bains said, noting the industry was being “devastated” by the pandemic.
To date, only two firms have received LEEFF loans since the program came into effect in May. Critics have complained that it imposes too many operating restrictions and the interest rates are well above the average from private lenders.
Regardless of the shape it would take, an airline bailout would be the first targeted commercial aid promised by the Liberals since the beginning of the pandemic in March.
And the help can’t come soon enough, according to the airline industry.
Monday, Air Canada reported a loss if $685 million for the third quarter of the year, in addition to a net cash burn of $9 million per day.
The airline also admitted to considering closing 95 additional routes (on top of the 30 domestic routes already suspended indefinitely earlier this year) until Garneau’s announcement Sunday that an aid package was coming.
“(Monday’s) results reflect COVID-19’s unprecedented impact on our industry globally and on Air Canada in what has historically been our most productive and profitable quarter,” CEO Calin Rovinescu wrote in a statement.
Mike McNaney, president and CEO of the National Airlines Council of Canada with represents Air Canada, WestJet, Air Transat and Jazz Aviation, said he was “encouraged” by Garneau’s announcement.
“Airlines are struggling to remain viable because of the economic chaos created by COVID-19. All measures have been taken to reduce costs, and revenue has fallen beyond the means of even the most extreme cost cutting measures to address. The industry will not recover without strong federal leadership,” he said in a statement Sunday.
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